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Raw sugar may drop to less than 20 cents a pound by year-end as global supply exceeds demand for a second season in 2012-2013, according to F.O. Licht GmbH, which said that lower prices may spur restocking by importers. The commodity dropped for the first time in nine days in New York.

The surplus may counter support that sugar gets from higher oil prices, according to Christoph Berg, managing director at the Ratzeburg, Germany-based researcher who’s covered the market since 1994. Sugar, which hasn’t traded below 20 cents since September 2010, snapped the best run since November of that year.

Lower prices would cut expenses for users such as soft- drinks maker Coca-Cola Co. (KO), which has also predicted global surpluses, while helping to extend a decline in world food costs. Sugar may trade between 20 cents and 25 cents on rising supply in the Northern Hemisphere and prospects for a good 2012-2013 crop in Brazil, HSBC Holdings Plc said in a report on Feb. 17.

“We currently see a fair price, possibly some weakness in the second half,” Berg said in a phone interview before an industry conference that began in Bangkok today. “We’re talking more about sugar prices falling to 20 cents, possibly below.”

Raw sugar on ICE Futures U.S. lost 27 percent in 2011, the biggest drop in a decade, as traders sold the commodity on anticipation of a second surplus after three shortages. The May- delivery contract declined as much as 0.7 percent to 25.36 cents today, dropping from the highest level in more than three months. The price was at 25.50 cents at 9:43 a.m. in London.

Olam’s Outlook

Supply may top demand by as much as 7 million tons in 2012- 2013 as Brazil’s crop recovers and output in Thailand and China climbs, John Stansfield, senior analyst at Olam International Ltd. (OLAM)’s UK unit, said at the conference and in an interview. This season’s surplus is estimated at 9 million tons, he said today.

“Having surpluses for two consecutive years puts pressure on prices,” said Stansfield, who’s worked in the industry since 1994. The level of 20 cents would offer strong potential support, and lower prices would increase consumption, he said.

The surplus may be smaller than the 5.8 million tons this season, Stefan Uhlenbrock, senior commodity analyst at F.O. Licht, said in an interview. The company is compiling data on the 2012-2013 balance, and declined to provide precise estimates.

While a rally in oil may help to lift sugar in the near term, the surplus will contain any rise, F.O Licht’s Berg said. Higher crude oil prices can trigger increased production of ethanol from cane, curbing the production of raw sugar.

Crude oil in New York has gained 9.8 percent this year on prospects for higher demand as the global economy recovers, and on concern that supplies from Iran may be disrupted. The April- delivery contract was little changed at $108.51 a barrel.

Brazilian Crop

Output in the biggest sugar producer Brazil may gain next season on weather conditions and a recovery in cane yields, Uhlenbrock said. The harvest in number-two grower India is headed for a downturn as millers may be unable to make cane payments to farmers for this year’s crop, he said.

Demand growth this season may recover to a normal rate of 2.4 percent after three years of stagnant growth as prices have declined to affordable levels, said Uhlenbrock. That will spur demand, especially from China, Pakistan and Africa, he said.

Thailand, the second-largest exporter, is among countries forecasting higher output. The cane crop may be a record this season and reach a fresh peak next year as plantings expand, the Office of the Cane & Sugar Board said yesterday. Exports may be 7.9 million tons in calendar 2012, Secretary-General Prasert Tapaneeyangkul said. That’s 18 percent more than last year.

Global food costs have declined 9.9 percent since reaching an all-time high in February 2011, according to a 55-item gauge compiled by the Food & Agriculture Agency, the Rome-based United Nations group.

The sugar market is set for a “big surplus and lower prices,” Jacob Robbins, managing director of global sweeteners at Coca-Cola, said earlier this month. The Atlanta-based company is the world’s largest maker of soft drinks.